What is an Outsourced Chief Investment Office (OCIO)?

By Paul Dimitruk

12 December 2022

What is an Outsourced Chief Investment Office (OCIO)? 

A full-service OCIO should offer comprehensive investment program management including an agreed overall investment policy, strategic and tactical asset allocation, portfolio construction, asset manager selection, risk monitoring and management, performance reporting and attribution, and middle and back-office operations. OCIOs are fiduciaries and, as such, must provide assurance to their clients that they have the skills, resources, organisational cohesiveness and stability to serve their clients for many years to come. 

What should you expect from an OCIO partner firm? 

A truly exceptional OCIO firm should provide full operational capabilities such as dedicated day-to-day client service teams, trading, sophisticated performance reporting, and custodian relationship management. Some key areas to look out for when selecting an OCIO partner include: 

Proactive and Continuous Risk Management: An OCIO should continuously monitor risk at the portfolio, tactical and asset manager level so that risks like portfolio concentration, correlations and liquidity are within prudent levels. 

Transparency and Aligned Interest: A proper OCIO should avoid conflicts of interest and should fully disclose any that may exist, including the sharing of any economics with asset managers. 

A Global Team: Institutional investing requires a global professional team of full-time on-the-ground skills to select and monitor asset managers in the key markets in North America, Europe and Asia Pacific.

Hands-On Investment Professionals: OCIO clients should expect that the team that serves and meets with them are front-line investment professionals, not mere relationship or account managers. 

What kinds of services do OCIOs provide? 

A full service OCIO will have a range of services and resources that enable it to relieve a client of the burden of managing its investment program internally and coordinating the management of outside institutions and professionals required to support the program.

A truly full service offering should include:

Asset Allocation

Sophisticated and experienced investors know that proper asset allocation is the bedrock of a successful investment program. There are numerous and complex considerations that go into asset allocation, including forward-looking comparative risk and returns among asset classes, macro-economic conditions like inflation and interest rates, and the relative alpha and beta volatility of each asset class. At Partners Capital we review clients’ asset allocations at least annually to pressure test them against our asset class and sub-asset class risk and return forecasts.

Portfolio Construction

Portfolio construction is the next stage after asset allocation. Like asset allocation, portfolio construction entails numerous and complex considerations, including risk appetite, liquidity needs, illiquidity and volatility tolerance, fee sensitivity and time horizon. At Partners Capital we customise client portfolios around these and other considerations, seeking to optimise the portfolios for the clients’ primary investment objectives.  

Asset Manager Selection And Access

Identifying asset managers who one would regard as best of breed through active research and manager due diligence is a weighty task.  However, gaining access to the top managers can be an even more formidable task as many of these managers are closed to new investors or have limited capacity in their funds. At Partners Capital we have spent over two decades cultivating relationships with what we regard as the top asset managers in North America, Europe and Asia Pacific to gain access for our clients. 

Full Service Operational Support 

Robust operational support (e.g., trading, and coordination of custodians, banks, tax preparers, estate planners) is critical to error-free investing. Risks of operation failure include funds not being directed correctly, avoidable tax and regulatory liabilities, selection of the wrong security, missed deadlines and loss from cyber attacks.  

Robust operational support (e.g., trading, and coordination of custodians, banks, tax preparers, estate planners) is critical to error-free investing. Risks of operation failure include funds not being directed correctly, avoidable tax and regulatory liabilities, selection of the wrong security, missed deadlines and loss from cyber attacks.

Detailed Performance and Attribution Reporting  

We hear time and again that the performance and attribution reporting  received from many OCIOs falls short of client needs, particularly on attribution. At Partners Capital clients get full attribution reporting on a quarterly basis which shows in detail the performance derived from strategic asset allocation, tactical asset allocation, liquid manager selection, illiquid manager selection and fees and other impacts. We also show for every asset manager there alpha and beta returns against relevant benchmarks.

What can you expect from Partners Capital OCIO Services?

Partners Capital provides Outsourced Chief Investment Officer (OCIO) services globally to a range of institutional and private clients. As a pioneer in the rapidly growing OCIO industry, Partners Capital continues to evolve and strengthen our offerings to provide industry leading solutions for our distinguished clients. Our core strengths include: 

A Global Firm With Strategic Local Hubs in North America, Europe and Asia Pacific 

We believe one has to have ‘boots on the ground in each of the key global markets in order to identify, diligence and gain preferred access to top-tier asset managers. This localised global presence enables us to bring diversified and differentiated sources of return and reduced levels of concentration and correlation risk to our clients. 

Bespoke Diversified Investment Programs 

We know that a ‘one size fits all’ approach does not meet the needs of our sophisticatedand demanding clients. At Partners Capital we craft each investment program to fit our clients’ unique liquidity needs, appetite for illiquid assets, risk tolerance, time horizon and legacy investments. 

A Global Network Of Handpicked Asset Management Partners 

Partners Capital avoids the conflict of interest inherent in allocating clients to in-house funds. We allocate exclusively to completely independent asset managers with whom we share no economics. This helps assure we select managers exclusively on what we perceive to be their capabilities. Our reputation and ‘buying power’ enable us to gain access to leading asset managers that have limited capacity or are otherwise closed to new investors.

Disciplined Risk Measurement and Continuous Management

Constructing a resilient investment portfolio requires clear agreements around risk level and a capacity to measure and monitor risk in its various forms. This is not a trivial undertaking.

At Partners Capital we evaluate investments at the portfolio and asset manager levels with a focus on separating beta exposures (market risk) and its alpha production (returns based on manager skill) as well as the true volatility of the beta and alpha. 

Dedicated Macro-Economic and Geopolitical Research

Successful global investment programs must consider the macro-economic and geopolitical forces impacting economies and markets. At Partners Capital our Central Research Team and Office of the CIO continuously track these forces via our own research, a network of leading research partners and direct dialogues with leading investment thinkers and practitioners. We regularly share these learnings to our clients in newsletters, whitepapers and our annual Insights publication. 

Dedicated Service and a Turnkey Operating Platform 

All Partners Capital clients are supported with a dedicated Client Services professional and a comprehensive platform of customised services tailored to their specific operating needs. These services can include: trading, transactional management, performance reporting, bank interface, and the management of relationships with custodians, lawyers, accountants and tax advisors. 

Dedicated To Transparency and Aligned To Our Clients’ Interests 

Partners Capital was designed from the outset to avoid the conflicts of interest that are endemic to the investment industry. We work to avoid in-house bank funds and aim to work almost entirely with independent owner-operated asset managers where their long-term economic interests are aligned with those of our clients.